Behavioral Efficiency II: A Simple Laboratory Demonstration
University of Missouri
October 9, 2011
ISER Discussion Paper No. 819
Laboratory experiments reporting on shortfalls from allocative efficiency of allocation mechanisms depend on the induced-values methodology, which cannot be extended to the field. Harstad  proposes to observe efficiency of allocation mechanisms without knowing motivations via behavior in appropriately designed aftermarkets. This paper demonstrates the approach in a highly simplified economy: allocation of a single unit of an abstract commodity. In the context studied, second-price auctions are observed to yield significantly greater behavioral inefficiencies than first-price auctions, both in terms of frequency of behaviorally inefficient outcomes, and in terms of the expected size of gains from aftermarket trade missed by the auction itself. The design is shown to be field-ready.
Number of Pages in PDF File: 12
Keywords: behavioral efficiency, field experiment methodology, allocative efficiency, efficiency of auctions, aftermarkets
JEL Classification: C9, C93, D01, D61, D03, D46
Date posted: October 13, 2011
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